| 29 May 2024, Wednesday |

India cuts fuel taxes ahead of festive season to boost economic recovery

The Indian government reduced petrol and diesel taxes on Wednesday in an effort to boost consumer sentiment as Asia’s third-largest economy recovers from the shocks of severe lockdowns to control the spread of the coronavirus.

The excise duty on petrol has been reduced by 5 rupees ($0.0671) per liter, and the duty on diesel has been reduced by 10 rupees ($0.1342) per liter, according to a government statement.

Following the federal move, at least ten states ruled by Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) or its allies announced late Wednesday that they would go even further, lowering local fuel taxes by up to 7 rupees per liter.

The tax break comes on the eve of Diwali, the Hindu festival that kicks off India’s busy festive season, which is typically marked by increased consumer spending.

The federal government will face a revenue loss of between 550 billion rupees ($7.38 billion) and 600 billion rupees as a result of the tax cuts, according to a government source who declined to be named because the details are not public.

Consumer spending in India has been steadily increasing in recent months, with a relaxation of restrictions on travel and business operations due to a decrease in the number of coronavirus cases.

However, high fuel prices have harmed the profit margins of corporations as well as farmers, who contribute significantly to the economy.

“Given that inflation expectations are rising, there was a need to reconsider the tax component,” N.R. said. Bhanumurthy is an economist and the vice chancellor of the B.R Ambedkar School of Economics in Bengaluru. “This will dampen inflation expectations to some extent, bode well for sustained GDP (gross domestic product) growth.”

In recent weeks, Modi’s government has come under fire from the main opposition Congress party for rising fuel prices.

In a country where the majority of people live on less than $2 per day, taxes account for a significant portion of fuel prices: in New Delhi, a liter of petrol costs 110.04 rupees, while diesel costs 98.42 rupees.

Prior to the price reduction announced on Wednesday, taxes accounted for approximately 52% of the price of gasoline and 47% of the price of diesel.

Rising global oil prices have pushed retail prices of petrol and diesel to a record high this month in India, the world’s third-largest oil importer and consumer, which imports approximately 85 percent of its oil needs from abroad.

Global oil prices rose to $86.40 per barrel on October 26 – the highest since October 2014 – as economies were hit by the COVID-19 pandemic, though they have since fallen to around $82.5 per barrel.

  • Reuters